by Maria Coppinger-Peters
I am a banker; there, I said it. That said, I have been in banking for 26 years and have seen many changes in the money-laundering arena. MOs are getting more sophisticated and concealed a little more carefully. Result: the development of anti-money laundering software that helps detect and deter money-laundering activities. Gone are the days of relentlessly reviewing report after report to no avail. Hit ‘run query” and all sorts of goodies pop up. Thankfully, technology has kept pace with the schemers.
AML (Anti-Money Laundering) and BSA (Bank Secrecy Act) laws are absolutely my favorite regulations. No other regulation can provide the feeling of accomplishment when money-laundering violations are found and reported. The same goes for anti-terrorist funding reports. You feel you made a difference that is valued by law enforcement and government. However, no matter what your business line is, money laundering can influence your bottom line. That said, here is a brief overview on how and what should happen when detecting and deterring money-laundering
First, there are two definitions for money laundering:
- It is the introduction of illegally obtained currency into the banking system, AND
- It is using the banking system to illegally hide currency that was lawfully obtained.
Then there are the three general methods of money laundering:
Placement – the process of depositing illegal assets into the financial industry through ANY method: wires, cash, checks, money orders, etc.
Layering – the movement of illegal assets through financial institutions to separate the assets from the origin illegal source: wire transfers, CDs, drafts, letters of credit, internal transfers, negotiable instruments, foreign exchange, ACH, etc.
Integration – the movement of “laundered” funds back into the economy as legitimate funds (wire transfers, ACH, checks, Internet, etc.)
Suspicious Activity – Defined
It is impossible to define all activity that would qualify as suspicious. However, the following guidelines quantify the types of suspicious accounts/activities that should be monitored:
1. “High-risk” businesses (defined later in this article),
2. Other business with high wire transfer activity, particularly wires to foreign entities and banks,
3. Cash intensive businesses,
4. Frequent consumer foreign wire transfer activity,
5. Frequent large cash consumer deposits and withdrawals.
One of the best ways to avoid being an unknowing accomplice to money launderers is to properly identify new customers, clients and vendors.
General Procedures for Detecting Money Laundering
Accounts/activities falling into the category of “high risk” as defined by FinCEN (www.fincen.gov) or because of the individual account risk assessment process, should be reviewed for suspicious activity, money laundering and structured transactions. (Structuring is defined as making deposits and withdrawals in a series of transaction to avoid Currency Transaction Reporting requirements (http://www.fincen.gov/forms/files/fin104_ctr.pdf ). Structuring transactions is against the law, and a Suspicious Activity Report (Treasury form TDF 90-22.47) must be filed.
Detecting money laundering requires a several things. Use your technology. Review and analyze your data. Obtain supporting documentation. Retain all records relating to the case for at least 5 years. File a Suspicious Activity Report if warranted.
Certain types of business are more likely to be involved with money laundering. Examples of high-risk type accounts include but are not limited to Non-Bank Financial Institutions (NBFI’s), Professional Service Providers, Non-Governmental Agencies (non-profits) and cash intensive businesses. Accordingly, all businesses that are classified as one of the following may receive increased scrutiny of account activity.
This is not an all-inclusive list but rather samples of typical cash intensive, high-risk types of customers.
- Check cashing operations
- Currency dealer or exchanger
- Convenience stores
- Adult entertainment clubs
- Used car or motorcycle dealers that finance their own sales
- Used boat dealers that finance their own sales
- Liquor stores
- Apartment houses
- Parking garages
- Car wash facilities
- Charitable organizations
- Agent accounts for Money Service Businesses
- Money Service Businesses
- Other Professional Services (accountant, attorney, etc.)
- Privately owned ATMs and Leased ATMs
Suspicious and high-risk accounts should be monitored closely and should include site visits to determine the legitimacy of the business, business address and to determine if the business activity is consistent with the stated business activity, established at account opening.
Anti-Money Laundering & Suspicious Activities – Lending
Lending vehicles are becoming more and more popular with money launderers. Unusual or suspect actions, such as hesitancy to provide required identification, or refusal to provide the purpose for a loan, are key warning signs. Apparent unusual concern for secrecy regarding personal identity, occupation, type of business or property held. Other factors:
- Displays high level of curiosity about internal systems, policies, and controls.
- Has little knowledge of the amount and details of a transaction; provides confusing and/or inconsistent details about a transaction; or is unwilling to provide explanation about a transaction.
- Appears nervous, secretive, and reluctant to meet in person; over justifies or explains a transaction.
- Lifestyle inconsistent with known, legitimate sources of income or possesses large sums of money not consistent with known income sources.
- Use of multiple Post Office boxes or changes addresses frequently.
- Transactions with no logical economic purpose (no link between the activity of the organization or business and other parties involved in the transaction).
- Same day transactions at same depository institutions using different teller windows.
- Use of sequentially numbered money orders.
- Opening an account or loan where several persons have no apparent familial or business relationship but are designated signature authority.
- Individual is associated with a person linked to document forgery.
For more information, please visit: www.fincen.gov and http://www.fincen.gov/statutes_regs/ChapterX/pdf/ChapterXAnnotated.pdf. FinCEN’s mission is to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.